Top five prepaid card fraud scams

By Waynette Tubbs, Risk & Fraud Insights Editor

The amount of fraud in the prepaid space is low but persistent. Consumers rely on the cards for a variety of reasons and they are confident of the card's safety because it isn't tied to their personal information or banking. But the fact that the cards aren't attached to a bank account means that customers who are victim to fraud have no legal resource and it can be particulary difficult to uncover. Tackling fraud in this space helps ensure a good experience for the prepaid card customer and safeguards your reputation.

Here are five key types of prepaid scams and some best practices for mitigating them.

Telephone scams – A fraudster calls into a merchant who sells GPR (general purpose reloadable) products. The fraudster says that he is calling from the mobile payment provider and needs to test the clerk’s terminal. When the clerk resists, the fraudster persists saying that this is a necessary protocol that will get the clerk fired if he doesn’t comply. The clerk relents and gives the fraudster a pin number for a GPR, which the fraudster immediately loads into a card on his end and then cashes out at an ATM that he standing beside. He tells the clerk that the signal from store’s terminal is fuzzy, weak or distorted and that they must run the test again. This process happens three or four times until the fraudster has amassed $2000 or $3000. The fraudster hangs up and the clerk realizes that he has been scammed.

Key to mitigating this scam – Training and velocity monitoring.

Card swaps – A fraudster enters a location with branded prepaid cards or GPRs that are hanging on racks in card packs. The fraudster steals the card packs, uses a razor blade to open the card pack and replaces the real card with a dummy card. He then takes the card pack with the dummy card back to the location and waits for the dummy to be activated. When it is activated, the fraudster redeems the funds from the card.

Key to mitigating this scam – Designing a tamperless package and training clerks to watch for this type of activity.

Packaging compromises – Fraudsters take the gift card or prepaid card from the rack and skim (copy the magnetic swipe data) from one card to another card and then wait for skimmed card to be activated. Once it is activated, they have an exact copy of the activated card. Skimming is very difficult to determine.

Key to mitigating this scam – Redesign packaging so that the magnetic stripe cannot be accessed without destroying the packaging. Also, put the last four numbers of the card on the package and ensure the clerk compares those numbers to ensure the integrity of the card.

Method of tender – If you accept prepaid cards for payment, chances are you will get stolen cards presented for payment. Train your retailers on how to protect the card acceptance process at the point of sale - have the card present for the transaction, get a signature from the sales rep, and get an electronic authorization. If the retailer has those three things, even if the card is stolen, it will not lose the money.

Tax fraud – Criminals complete tax returns using fraudulent identities – both on the state and federal level – and have the proceeds forwarded to their GPR card.

Key to mitigating this scam – Match the name on the GPR account to the name on the IRS return.

Creating a frictionless experience for consumers is very important, so the final best practice is to step in very quickly to investigate and resolve any losses.

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